Micron Technology stock: chip sentiment killer

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by Klaus Schachinger, €uro on Sunday

EIt was like a cold shower for the entire chip sector. For the current fourth quarter to the end of August, Micron boss Sanjay Mehrotra promised significantly less in terms of sales and profit than analysts had previously expected. Demand from industry has recently dropped. Micron is therefore preparing for weaker growth in the new fiscal year, said Mehrotra, explaining the surprising forecast from the memory chip specialist.

Micron’s semiconductors are used as main memory (DRAM chips) and as a replacement for hard drives (NAND chips) in PCs, network computers and smartphones. The market for memory chips (DRAM, NAND) is a mass business and is therefore characterized by distinct cycles.

If chip demand falls quickly without the manufacturers having adjusted their capacities accordingly, which requires a considerable lead time in the chip factories, the fabs, the chip prices fall much faster than in markets for customer-specific electronic components like them due to the oversupply in the mass market such as Texas Instruments or Infineon.

Prepare for downturn

In mass business, manufacturers like Micron therefore risk in downturn phases instead of making decent profits surprisingly quickly make losses. To avoid that, you have to react early. The chip group based in Boise, Idaho, is now very cautious with its forecast and is forecasting revenue of $7.2 billion in a plus-minus corridor of $400 million for the fourth quarter. That’s $1.63 earnings per share with a 20-cent corridor.

On average, analysts had expected earnings per share of $9.1 billion, which is significantly more. The decline forecast by Micron can be seen, for example, in the PC market, which is important for memory chip developers. Market researcher Gartner Group expects a decline of 9.5 percent worldwide for this year. “The mix of geopolitical tensions, currency fluctuations and supply chain disruptions is significantly weakening consumer and corporate demand. This will hit the PC market hard this year,” said Gartner analyst Ranjit Atwal.

Harsh Kumar, analyst at US investment bank Piper Sandler, was one of the first to warn of a collapse in demand in Micron’s markets in early June. There are concerns, he wrote, with a view to weaker growth in the global economy and Micron’s dependence on markets that are shaped by the behavior of private users – more than 50 percent are achieved with PCs and smartphones, for example. The new presence as a chip supplier in the automotive industry is likely to be affected by weaker economic growth.

From 2024 upwards

For Micron’s fiscal year ending August 2023, economists in the US are no longer ruling out a recession. Analysts therefore expect a good seven percent less revenue at Micron, a total of 29.4 billion dollars. With the cyclical upturn from 2024, sales are expected to increase by almost a fifth to $35.3 billion.

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